The Progressive Waste – Waste Connections merger and the MAE clause
The MAE (material adverse effect) clause is one of the first things that arbitrageurs check in a merger agreement. In the case of the Progressive Waste-Waste Connections merger, the MAE clause lays out the circumstances where Waste Connections (WCN) can back out of its merger with Progressive Waste (BIN).
It’s important to note that some companies refer to the “MAE” clause as a “MAC” (material adverse change) clause, but it’s more or less the same thing. In fact, arbitrageurs always call it the MAC clause, regardless of how it’s characterized in the merger agreement.
Paraphrasing the MAE clause
As a general rule, MAE clauses follow a similar format. Just about anything that has a material adverse effect on the company is considered an MAE, but there are exceptions to that rule.
Please note that the MAE clause has been paraphrased here to limit the legal jargon. You should still read and understand the actual language in the merger agreement.
“‘Company Material Adverse Effect’ means any Effect that, (i) individually or in the aggregate, has a material adverse effect on the condition (financial or otherwise), business or results of operations of the Company and the Company Subsidiaries, taken as a whole; provided, however, that no Effects resulting or arising from the following shall be deemed to constitute a Company Material Adverse Effect or shall be taken into account when determining whether a Company Material Adverse Effect exists or has occurred or is reasonably likely to exist or occur.”
In simpler words, this is the standard MAE clause: “Anything bad that happens to Progressive Waste which delays or ruins the economics of the deal is a MAE, except for the following.” The exceptions will be laid out in the following two parts of this series. Note that there’s a disproportionate effect clause. One of the exceptions could still be an MAE if it impacts Progressive Waste disproportionately relative to other companies in the industry that it operates in.
Merger arbitrage resources
Other important merger spreads include the deal between Baker Hughes (BHI) and Halliburton (HAL). For a primer on risk arbitrage investing, read Merger arbitrage must-knows: A key guide for investors.
Investors who are interested in trading in the consumer services sector should look at the iShares US Consumer Services ETF (IYC).